Fiona O'Shea: Credit squeeze dampens shock and awe tactics of the taxman
Revenue Commissioners' power of attachment has been questioned before, but never challenged in court, writes Fiona O'Shea
The collapse of troubled haulage firm Target Express last week with the loss of nearly 400 jobs was blamed by managing director, Seamus McBrien, on the Revenue Commissioners' heavy-handed tactics.
According to McBrien, he had been in negotiation with Revenue when it slapped notices of attachment on the firm's bank and customers.
While not commenting directly on Target Express, the statement released subsequently by Revenue chairman Josephine Feehily seemed to sharply contradict that view.
Revenue only pursues enforcement action, according to Ms Feehily, when all efforts at engagement fail. "Liquidation, bankruptcy and attachment are only used as a last resort in cases where the debt problem is serious and intractable."
Liquidation and bankruptcy are certainly tactics of last resort but attachment isn't necessarily so. Revenue initiated the liquidation of just 62 companies last year. By comparison, there were almost 4,500 attachments bringing in €30m for the Exchequer.
Attachment is more like a short sharp shock used to bring a wayward taxpayer to the negotiating table. When Revenue is chasing a late payment and is not happy the business is co-operating, it can go to its bank or customers to demand the tax. Unlike other creditors, it does not have to get court permission for an attachment so that the first a business may know about it is a call from the bank.
Many tax practitioners question the constitutionality of Revenue's power of attachment, but it has not been challenged in the courts. For a business already in financial difficulties the legal costs of a challenge are prohibitive.
A 75-page instruction manual for staff describes attachment as speedy and tax-efficient, citing the negative effect on a taxpayer's standing with customers as a way of getting the taxpayer to engage with Revenue.
It also appears that attachment can be considered as a first enforcement option if a new debt comes to notice when the overall tax debt is already at a substantial level or escalating rapidly.
And, presumably, attachment is a useful way of getting at funds before they can be used for any other purposes.
When the credit squeeze started over four years ago, Revenue published guidelines for businesses in financial difficulty encouraging them to engage early with it. The message was that it would consider phased payments where the prospects for the business are good.
The tax debts of Target Express, the company, do not appear to be old, judging by the reports of the High Court affidavit and comments from the provisional liquidators. The debt is reported at €600,000 comprising three months' PAYE/PRSI and a debt of €75,000 from last year.
However, Revenue takes a very strict line with late payment of employees' PAYE/PRSI and VAT. These are collected by the business on behalf of the State and are never available for use as working capital. Non-payment of PAYE/PRSI is particularly serious in view of the implications for workers' entitlements.
But the credit squeeze shows no sign of easing up and missed deadlines for tax payments may be just one more symptom.
According to ISME, representing small and medium-sized enterprises, their members are suffering more than most, many having to wait over 70 days for payment from their larger customers including government agencies but having to pay suppliers upfront. Bank loans and overdrafts which were available in the past to help fund working capital and meet tax payments are much harder to come by.